Fresenius Medical (FMS) Q4 Earnings Beat, View Impressive

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In the quarter under review, revenues increased 11.3% year over year to $5,216 million but missed the Zacks Consensus Estimate of $5,370 million. At constant currency (cc), revenue improved 8% year over year.

By geography, North America revenues rose 8% at cc on a year-over-year basis and accounted for 71.4% of total revenues. Health Care Services in the region grew 8% at cc while Health Care Products revenues improved 9% at cc on a year-over-year basis. Fourth-quarter organic growth at the segment was solid at 19% on a year-over-year basis.

This was fueled by higher dialysis treatments and an increase in U.S. revenues per treatment. The Dialysis Care business grew 3% at cc on a year-over-year basis in the region. Meanwhile, the Care Coordination segment delivered an improvement of 24% at cc.

Revenues in the region increased 6% on a year-over-year basis at cc. Health Care Services revenues from the EMEA segment increased 4% at cc on a year-over-year basis. Health Care Products revenues rose 7% at cc in the fourth quarter.

The Health Care Services segment was primarily driven by growth in same-market treatments, partially offset by a decline in organic revenue per treatment. The growth in Dialysis Products revenues in the region was boosted by higher sales of products for acute care, products for peritoneal dialysis and machines. However, this was partially offset by lower sales of dialyzers.

The Health Care Services segment in the Asia-Pacific region was supported by the acquisition of Cura Group in Australia. Dialysis treatments in the region increased 7% at cc, which drove Health Care Products sales in the segment.

Latin America Revenues

Revenues in the region increased 16% at cc on a year-over-year basis. Notably, Health Care Services segment at the region increased 16%, while Health Care Products increased 15% year over year.

For full-year 2018, Fresenius estimates revenue growth of 8% at cc. Net income attributable to shareholders is likely to increase around 13-15%.

Our Take

Fresenius Medical’s strong guidance for 2018 instills optimism. The company reconfirmed the mid-term outlook of its ‘Growth Strategy 2020,’ under which it aims to boost revenues to $28 billion by 2020, corresponding to an average annual growth rate of around 10%. A wide range of dialysis products, initiatives to gain market traction, strong international foothold, strategic acquisitions and divestments act as major catalysts for the company.

However, higher costs related to dialysis services, peritoneal dialysis product business in China and the impact from foreign currency transaction effects are likely to dent margins. Having a strong international foothold, Fresenius Mediacal faces a highly regulated environment in almost every country in which it operates. Furthermore, the company has to fulfill specific legal requirements that include tough antitrust regulations. Thus, regulatory hurdles and competition in the niche markets are major headwinds.

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